Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.15C h a i r m a n ’ s

9/ 30/ 2022

C o l u m n

Why are companies reducingcapital?
I was surprised at the recent report that HIS which owns
the majority shares of Nagasaki Huis Ten Bosch will sell
the theme park to a Hong Kong real estate fund. HIS will
also reduce their capital from 24.7 billion yen to 100
million yen.
It seems that many companies are recently undergoing
capital reduction. According to Tokyo Shoko Research,
for the period ending March 31, 2021, a total of 3,321
companies reduced capital, an increase of 873
companies (35.6% increase) compared to the previousyear.

Huis Ten Bosch in Nagasaki prefecture

Publicly listed companies are no exception. Rotatingsushi chain Kappa Create and smartphone gamedeveloper Gree also reduced capital to 100 million yen.
You may think this is unusual, but this change isreasonable under regulation, and neither an illegal act
nor tax evasion.

For non-listed companies, the capital amount signifies
company size and bigger is generally favorable foremployees that may apply for mortgages or credit cards.
But with substantial uncertainty looming for many
companies, it seems that such benefits are not a priority
at the moment.

The advantage is that a company with capital of 100
million yen or under is treated as a small or mediumsized enterprise under tax law. Enterprise tax (local tax)
has a size-based portion, typically a fixed payableamount. This will become exempt at the reduced
capital amount. For Tokyo, any amount exceeding 100
million yen will be taxed at the capital basis rate of0.525%. For HIS, reducing their prior capital amount of
24.7 billion yen would result in tax savings of 130 million
yen. Their industry was particularly hit hard by Covid,
so the financial impact is significant even for large
corporations.

As of this day of writing this, the dollar is trading at over
143 yen and procurement costs for goods are risingacross the board. It is said that companies are reducing
capital because of their decrease in profitability. For
SMEs in particular, it seems that capital reduction is anecessary decision to cut fixed costs in this time of
future uncertainty.
(Kazuhiro Matsuzawa, Chairman)

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.15R e n e w a b l e

9/ 30/ 2022

E n e r g y

Annual Energy Report for fiscal year
2021 (Energy White Paper 2022)
In June 2022, the Ministry of Energy released the Energy
White Paper 2022 which is an annual report of the basic
act on energy policy. The report is comprised of threeparts. The 2022 report includes Part 1 “Current Energy
Situation and Key Measures”, Part 2 “Energy Trends”,
and Part 3 “Measures Taken in FY2021 concerning
Energy Supply and Demand”.
The white paper discusses the progress of theFukushima reconstruction, challenges and responses
toward achieving carbon neutrality, and impact of Covid
and the Russian/Ukrainian conflict on energy supply andprices.
In terms of finance and tax and accounting, the topics
covered include global decarbonization, increasing ESG
investments, and demand for more disclosures related
to climate change. In Japan, listed companies on theTokyo Stock Exchange’s Prime Market are being asked
to provide disclosures based on TCFD and other globalframeworks. On a global scale, the ISSB (InternationalSustainability Standards Board) was established inNovember 2021 by

the IFRS Foundation, with the possibility of developing
international standards for ESG disclosures by the endof 2022.
With regards to our firm, 20% of our clients are in solar,
biomass, wind, and other renewable energy that
requires SPC administration. We know firsthand that
ESG investments are growing in Japan. Not only are
TCFD related disclosures picking up among publicly
listed companies but any developments with the ISSB
may trigger sustainability disclosure requirements for
non-listed companies as well. There may certainly be
an affect on funds as well, so we are keeping a close ear
on any developments.

The white paper also states the tax incentive extension
of “Special measure for property tax on renewableenergy facilities” until March 31, 2024. The extension
also applies to the “Reduced property tax for biomass
generation facilities” until March 31, 2024.
At ASA Group, we provide consulting for sustainability
disclosures and support application for tax incentives
for renewable energy facilities. Please reach out to us
to discuss ways we can help.
(Kenichi Shimizu, Executive Manager)

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.15R e a lE s t a t e

9/ 30/ 2022

S T O

Growing STO market in Japan
Recently in the world of real estate, use of the STO(security token offering) as a fund-raising option seems
to be gaining popularity. Last month, Kenedix raised aJapanese record of 7 billion yen for its real estate STO,which is large even by global standards.
The U.S. is the most active STO market with numerous
ST issuance platform companies. Switzerland andEngland are among the European nations that have STO
exchanges as well. Japan currently is growing theirmarket with new regulations and companies adopting
this new method.

Currently, there are no markets in Japan to trade STs.
However, SBI Holdings and Sumitomo Mitsui Financial
Group are among those jointly investing in “Osaka
Digital Exchange Co.” which will operate a proprietary
trading system where secondary trading is planned tobegin. With news like this, the STO market is expected
to grow in Japan.

(Shigeru Hirai, Client Relations Group)

The first real estate STO in Japan is said to be the “Fundfor renovating old residence to hotel in Hayama”(15 million yen raised). At that time, a TK method underthe Act on Specified Joint Real Estate Ventures was used,however no bankruptcy remoteness was secured.
Additionally, the ST transfer was not sufficient insecuring the right from protection from third party
claims. Consequently, the structure limited raising large
capital and was akin to crowdfunding.
In 2020, the “electronic record transfer right” wasincluded in the financial instruments exchange law
which would include STs. Additionally, those issuing an
STO will comply with the rules prescribed by the Japan
Security Token Offering Association so that investors
would be protected. Most recently, to protect the rightagainst third party claims in the ST transfer, a Japanese
Depositary Receipt (beneficiary certificate for entrustedsecurities) is being used more often.
Generally, an STO has the following characteristics:① Tradeable 24hrs② Same day settlement is possible③ Highly secure transaction based on blockchain④ Simplified procedures⑤ Low transaction cost
⑥ Low small-lot cost
⑦ Fund-raising from global investors is possible.

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.15N e w

9/ 30/ 2022

t r e n d sReskilling – Building a digital workforce
from the inside

The term “reskilling” has been the buzz recently invarious media outlets. “Recurrent learning” draws
parallels to reskilling, however there are a few clear
differences. “Reskilling” typically involves companies
that encourage employees to learn a new work skill
while “recurrent learning” can mean changing
companies to proactively acquire a new skill through“Work → Learn → Work”. Until recently in Japan, moreemphasis was placed on learning English and obtaining
industry specific licenses, so why are more companies
focusing now on “reskilling” employees?
One reason is that it’s become difficult to secure newtalent from the outside. Particularly now that digitaltransformation is unavoidable for companies, thecompetition is fierce for digitally native experienced
hires. For companies that plan a new line of businessthat includes digital transformation, but lacking thetalent that possess such skills, they may not be able tobuild their business at all.

If the company lacks digital talent, they may use an
external consultant, but fees are typically high anddeliverables may end up being useless in their business.
However, companies no longer have time to agonize
over their inability to recruit or retain talent inhouse or
have it done by an external consultant. That is where“reskilling” becomes key.

To keep up with a changing business environment,
companies that lack new talent no longer have theluxury of waiting for their employees to pick up skills on
their own. They seem to be investing more in employee
education. In Japan, companies that are expanding
their DX-related businesses like NEC and Fujitsu seem tobe leading the way for reskilling.
Funds and real estate businesses that we are a part of,
may also be feeling the pressure with the possibility of
new entrants who may change the game entirely. For
companies in many industries, this “reskilling” may be a
crucial part of surviving a rapidly changing new age.
(Jun Yoshioka, COO, ASA Advisory)

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.15J a p a n

Ta x

9/ 30/ 2022

U p d a t e

Transition period for Tax-exempt
businesses to register as Qualified
Invoice Issuer

Initially the regulation stated that for subsequent
periods after the tax period of October 1, 2023, a“Notification to elect taxpayer status” needed to besubmitted at latest in the prior year to issuance ofqualified invoices.

With the 2021 tax reform, tax-exempt businesses now
have more flexibility on when they can register as a
Qualified Invoice Issuer.

Under the reform, tax-exempt businesses may choose
to register as Qualified Invoice Issuer on any day in a tax
period from October 1, 2023, to September 30, 2029.

(Harutomo Yamasaki, Tax Consulting Group)(Source: Translated from National Tax Agency website)
Before reform(1) If the registration date falls in the tax period of October 1, 2023 (if the transition period measure is used)
Example) For a company with a fiscal year end of December 31, and registers October 1, 2023.
※ In this case, a "notification to elect for taxpayer status" is unnecessary.
After the registration date, all taxpayers will be required to file a consumption tax return.

Period of December

Period of December 2023
Deadline for registration
application
Registration date(March 31, 2023)(※1) (October 1, 2023)

Tax - Exempt businessTax - Exempt business

Filing required after
registration date
Qualified Invoice Issuer(Taxpayer status)

Period of December

Qualified Invoice Issuer(Taxpayer status)(※1) If submission is difficult by March 31, 2023, then by September 30, 2023.
(2) If the registration date falls on a subsquent period after the tax period of October 1, 2023.
(Example) For a company with FYE December 31 and registers on or after January 1, 2024 after becoming a taxpayer※ In this case, a "notification to elect taxpayer status" is submitted and the registration application is required by
one month prior to the first day as a taxpayer.

Period of December

Period of December 2023Deadline for registration
application(November 30, 2023)

Tax - Exempt businessTax - Exempt business

Period of December
Registration date
Qualified Invoice Issuer(Taxpayer status)

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.15J a p a nTa x9/ 30/ 2022

U p d a t e(continued from previous page)

After Reform
Registration procedures for tax-exempt businesses> If registered during the period from October 1, 2023 to September 30, 2029, the business mayautomatically become a taxpayer (transition period measuere)〇 To register, a registration appliation is sent.
※ In this case, a "notification to elect taxpayer status" is unnecessary.

(Example) If a sole proprietor or company with FYE December 31 is registered from October 1, 2023.

Period of December

Deadline for registration
application
Registration date(March 31, 2023)(October 1, 2023)
Tax - Exempt business

Period of December

Period of December 2023

Tax - Exempt business

After

Qualified Invoice Issuer(Taxpayer status)

Qualified Invoice Issuer(Taxpayer status)

Please note the following:〇 If you become a Qualified Invoice Issuer→ Barring a cancellation of registration, a tax return filing is necesssary
even with less than 10 million yen in the base period,→ If the counterparty (taxpayer) requests a qualified invoice, the party must oblige.
〇 If the transition period measure is used, the business will remain in taxpayer status until the end of the 2nd tax
period from the day of registration (excludes registration day that lands in the tax period of October 1, 2023).
Even if registration is made invalid by submitting a "notifcation to cancel registration as a qualified invoice issuer",regardless of taxable sales, a consumption tax filing will be required.

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.